Net Cash decreased from $45.0 million to $39.5, inclusive of the $15.1 million paid at closing to acquire ContentIQ.

May 06, 2020 06:30 AM Eastern Daylight Time

TEL AVIV, Israel & NEW YORK--(BUSINESS WIRE)--Perion Network Ltd. (NASDAQ: PERI), a global technology company that delivers its Synchronized Digital Branding solution across the three main pillars of digital advertising - ad search, social media and display / video advertising – announced today its financial results for the first quarter ended March 31, 2020.

Financial Highlights*

(In millions, except per share data)

Three months ended

March 31,

2020

2019

%

Advertising revenues

$

23.7

$

18.6

+28%

Search and other revenues

$

42.3

$

35.3

+20%

Total Revenues

$

66.1

$

53.8

+23%

GAAP Net Income

$

1.3

$

1.2

+8%

Non-GAAP Net Income

$

5.0

$

3.3

+53%

Adjusted EBITDA

$

6.2

$

5.1

+22%

Net cash provided by operating activities

$

2.5

$

14.0

-82%

GAAP Diluted Earnings Per Share

$

0.05

$

0.05

0%

Non-GAAP Diluted Earnings Per Share

$

0.17

$

0.13

+31%

* Reconciliation of GAAP to Non-GAAP measures follows.

Doron Gerstel, Perion’s CEO commented, “The strong momentum that we experienced in the fourth quarter of 2019 continued in the first quarter of 2020. Our results were trending at record levels in January and February, which led to consolidated revenue growth of 23% for the full quarter. Our results were driven by the robust performance of our Search business and the contribution of ContentIQ (CIQ) which we acquired mid-January. Since the beginning of March, we have been navigating a rapidly changing business environment as the COVID-19 pandemic unfolded, driving a 15%-25% decline in advertising spending.”

“As the first quarter progressed and the impact of the COVID-19 pandemic became more pronounced, we swiftly began rolling out strategic initiatives to better prepare Perion for an uncertain market environment with reduced levels of advertising spending,” Gerstel added. “As part of this effort, we implemented cost-saving measures that are expected to yield more than $10 million in annualized savings on a proforma basis. Like others, we are cautiously optimistic that we will begin to see improvements in the overall market later this year. Nonetheless, with $54 million in cash, $40 million in net cash and the ability to generate significant free cash flow from ongoing operations, we have the financial stability to weather an extended period of disruption should it occur. The current management team’s demonstrated track record for managing costs, preserving cash and maximizing profitability, gives me confidence in our financial resilience and ability to withstand uncertainty.”

“The revenue flexibility provided by our product diversity and business mix across the three pillars of digital advertising, contributed to our Q1 success and is critical to our long-term prospects,” Gerstel continued. “CIQ performed well throughout the quarter and in line with expectations, demonstrating the strength and resiliency that our diversification provides. We are fortunate to have a highly focused and differentiated advertising offering which conceptually brings brands, agencies and publishers together – benefiting from a common digital advertising offering.”

Gerstel added, “With regard to the remainder of the year, the disruption in the advertising market and lack of visibility have caused us to join many other public companies who have made the prudent decision to temporarily withdraw full-year guidance. As the horizon becomes clearer and our visibility improves, we hope to return to providing estimates about expected results. We remain confident, that we have the diversification, product offerings and management discipline needed to generate significant cash from operations and remain profitable, for the full year, as we weather the uncertainty of the current environment.”

“We are navigating the current environment from a stable financial position that is superior to many companies in our industry,” concluded Gerstel. “Our organic and inorganic efforts to boost topline revenue remain our top priority. We’ve realized that more and more companies in our industry with excellent, complementary products, services and technologies lack the financial strength to weather a period of disruption. As a result, we have made the strategic decision to file a shelf registration statement, to assess M&A opportunities as they become available.”

Financial Comparison for the first quarter of 2020:

Revenues: Revenues increased by 23%, from $53.8 million in the first quarter of 2019 to $66.1 million in the first quarter of 2020. This increase was primarily a result of a 20% increase in Search and other revenues mainly due to an increased number of unique searches and additional new publishers. Advertising revenues increased by 28% as a result of the consolidation of Content IQ which was acquired on January 14, 2020.

Customer Acquisition Costs and Media Buy (“CAC”): CAC in the first quarter of 2020 were $36.1 million, or 55% of revenues, as compared to $27.4 million, or 51% of revenues in the first quarter of 2019. The increase as a percentage of revenue is primarily due to the acquisition of CIQ and product mix.

Net Income: On a GAAP basis, net income in the first quarter of 2020 was $1.3 million, or 2% of revenues as compared to a net income of $1.2 million, or 2.3% of revenues, in the first quarter of 2019.

Non-GAAP Net Income: In the first quarter of 2020, non-GAAP net income was $5.0 million, or 8% of revenues, compared to the $3.3 million, or 6% of revenues, in the first quarter of 2019. A reconciliation of GAAP to non-GAAP net income is included in this press release.

Adjusted EBITDA: In the first quarter of 2020, Adjusted EBITDA was $6.2 million, or 9% of revenues, compared to $5.1 million, or 9% of revenues, in the first quarter of 2019. A reconciliation of GAAP to Adjusted EBITDA is included in this press release.

Cash and Cash Flow from Operations: As of March 31, 2020, cash and cash equivalents and short-term bank deposits were $54.1 million. Cash provided by operations in the first quarter of 2020 was $2.5 million, compared to $14.0 million in the first quarter of 2019. The main reasons for the decrease in cash flow from operations is attributed to one-time working capital requirements for the CIQ operations and collection cycle differences between the business units.

Short-term Debt, Long-term Debt and Convertible Debt: As of March 31, 2020, total debt was $14.6 million, compared to $16.7 million at December 31, 2019.

Conference Call:

Perion will host a conference call to discuss the results today, Wednesday, May 6, 2020 at 8:30 a.m. ET. Details are as follows:

Conference ID: 6762387

Dial-in number from within the United States: 1-866-548-4713

Dial-in number from Israel: 1809 212 883

Dial-in number (other international): 1-323-794-2093

Playback available until May 13, 2020 by calling 1-844-512-2921 (United States) or 1-412-317-6671 (international). Please use PIN code 6762387 for the replay.

Perion is a global technology company that provides agencies, brands and publishers with innovative solutions that cover the three pillars of digital advertising. From its data-driven Synchronized Digital Branding platform and high-impact ad formats in the display domain; to its powerful social media platform; to its branded search network, Perion is well-positioned to capitalize on any changes in marketers’ allocation of digital advertising spend. More information about Perion can be found at www.perion.com.

Non-GAAP measures

Non-GAAP financial measures consist of GAAP financial measures adjusted to exclude acquisition related expenses, share-based compensation expenses, restructuring costs, loss from discontinued operations, accretion of acquisition related contingent consideration, impairment of goodwill, amortization and impairment of acquired intangible assets and the related taxes thereon, non-recurring expenses, foreign exchange gains (losses) associated with ASC-842, as well as certain accounting entries under the business combination accounting rules that require us to recognize a legal performance obligation related to revenue arrangements of an acquired entity based on its fair value at the date of acquisition. Additionally, in September 2014, the Company issued convertible bonds denominated in New Israeli Shekels and at the same time entered into a derivative arrangement (SWAP) that economically exchanges the convertible bonds as if they were denominated in US dollars when the bonds were issued. The Company excludes from its GAAP financial measures the fair value revaluations of both, the convertible bonds and the related derivative instrument, and by doing so, the non-GAAP measures reflect the Company’s results as if the convertible bonds were originally issued and denominated in US dollars, which is the Company’s functional currency. Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") is defined as operating income excluding stock-based compensation expenses, depreciation, restructuring costs, acquisition related items consisting of amortization of intangible assets and goodwill and intangible asset impairments, acquisition related expenses, gains and losses recognized on changes in the fair value of contingent consideration arrangements and certain accounting entries under the business combination accounting rules that require us to recognize a legal performance obligation related to revenue arrangements of an acquired entity based on its fair value at the date of acquisition.

The purpose of such adjustments is to give an indication of our performance exclusive of non-cash charges and other items that are considered by management to be outside of our core operating results. These non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods. Furthermore, the non-GAAP measures are regularly used internally to understand, manage and evaluate our business and make operating decisions, and we believe that they are useful to investors as a consistent and comparable measure of the ongoing performance of our business. However, our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures, and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. Additionally, these non-GAAP financial measures may differ materially from the non-GAAP financial measures used by other companies. A reconciliation between results on a GAAP and non-GAAP basis is provided in the last table of this press release.

Forward Looking Statements

This press release contains historical information and forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995 with respect to the business, financial condition and results of operations of Perion. The words “will”, “believe,” “expect,” “intend,” “plan,” “should” and similar expressions are intended to identify forward-looking statements. Such statements reflect the current views, assumptions and expectations of Perion with respect to future events and are subject to risks and uncertainties. Many factors could cause the actual results, performance or achievements of Perion to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, or financial information, including, among others, the failure to realize the anticipated benefits of companies and businesses we acquired and may acquire in the future, risks entailed in integrating the companies and businesses we acquire, including employee retention and customer acceptance; the risk that such transactions will divert management and other resources from the ongoing operations of the business or otherwise disrupt the conduct of those businesses, potential litigation associated with such transactions, and general risks associated with the business of Perion including intense and frequent changes in the markets in which the businesses operate and in general economic and business conditions, loss of key customers, unpredictable sales cycles, competitive pressures, market acceptance of new products, inability to meet efficiency and cost reduction objectives, changes in business strategy and various other factors, whether referenced or not referenced in this press release. Various other risks and uncertainties may affect Perion and its results of operations, as described in reports filed by Perion with the Securities and Exchange Commission from time to time, including its annual report on Form 20-F for the year ended December 31, 2019 filed with the SEC on March 16, 2020. Perion does not assume any obligation to update these forward-looking statements.

CONSOLIDATED STATEMENTS OF OPERATIONS

In thousands (except share and per share data)

Three months ended

March 31,

2020

2019

(Unaudited)

(Unaudited)

Revenues:

Advertising

$ 23,733

$ 18,584

Search and other

42,320

35,265

Total Revenues

66,053

53,849

Costs and Expenses:

Cost of revenues

5,766

5,766

Customer acquisition costs and media buy

36,138

27,433

Research and development

7,207

4,862

Selling and marketing

9,701

8,325

General and administrative

3,939

3,058

Depreciation and amortization

2,302

2,390

Total Costs and Expenses

65,053

51,834

Income from Operations

1,000

2,015

Financial expense (income), net

(8)

1,325

Income before Taxes on income

1,008

690

Tax benefit

326

542

Net Income

$ 1,334

$ 1,232

Net Earnings per Share

Basic

$ 0.05

$ 0.05

Diluted

$ 0.05

$ 0.05

Weighted average number of shares

Basic

26,287,515

25,883,768

Diluted

28,212,685

25,885,029

CONDENSED CONSOLIDATED BALANCE SHEETS

In thousands

March 31,

December 31,

2020

2019

(Unaudited)

(Audited)

ASSETS

Current Assets:

Cash and cash equivalents

$ 46,374

$ 38,389

Restricted cash

1,220

1,216

Short-term bank deposits

7,748

23,234

Accounts receivable, net

40,778

49,098

Prepaid expenses and other current assets

3,363

3,170

Total Current Assets

99,483

115,107

Long-Term Assets:

Property and equipment, net

9,801

10,918

Operating lease right-of-use assets

21,465

22,429

Goodwill and intangible assets, net

167,463

128,444

Deferred taxes

4,216

6,171

Other assets

673

708

Total Long-Term Assets

203,618

168,670

Total Assets

$ 303,101

$ 283,777

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:

Accounts payable

$ 41,133

$ 47,681

Accrued expenses and other liabilities

20,797

18,414

Short-term operating lease liability

3,680

3,667

Short-term loans and current maturities of long-term and Convertible debt

8,333

8,333

Deferred revenues

3,393

4,188

Short-term payment obligation related to acquisitions

13,699

1,025

Total Current Liabilities

91,035

83,308

Long-Term Liabilities:

Long-term debt, net of current maturities

6,250

8,333

Payment obligation related to acquisition

11,537

-

Long-term operating lease liability

19,085

20,363

Other long-term liabilities

6,014

6,591

Total Long-Term Liabilities

42,886

35,287

Total Liabilities

133,921

118,595

Shareholders' equity:

Ordinary shares

217

213

Additional paid-in capital

245,864

243,211

Treasury shares at cost

(1,002)

(1,002)

Accumulated other comprehensive gain

137

130

Accumulated deficit

(76,036)

(77,370)

Total Shareholders' Equity

169,180

165,182

Total Liabilities and Shareholders' Equity

$ 303,101

$ 283,777

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

In thousands

Three months ended

March 31,

2020

2019

(Unaudited)

(Unaudited)

Cash flows from operating activities:

Net Income

$ 1,334

$ 1,232

Adjustments required to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

2,302

2,390

Stock based compensation expense

1,100

463

Foreign currency translation

(29)

19

Accrued interest, net

-

(199)

Deferred taxes, net

(315)

(546)

Accrued severance pay, net

25

(316)

Fair value revaluation - convertible debt

-

699

Net changes in operating assets and liabilities

(1,921)

10,246

Net cash provided by operating activities

$ 2,496

$ 13,988

Cash flows from investing activities:

Purchases of property and equipment

(71)

(227)

Short-term deposits, net

15,486

(2,700)

Cash paid in connection with acquisitions, net of cash acquired

(15,100)

-

Obligation in connection with acquisitions

5,777

-

Net cash provided by (used in) investing activities

$ 6,092

$ (2,927)

Cash flows from financing activities:

Exercise of stock options and restricted share units

1,557

129

Payment made in connection with acquisition

-

(1,813)

Repayment of convertible debt

-

(7,901)

Repayment of long-term loans

(2,083)

(2,083)

Net cash used in financing activities

$ (526)

$ (11,668)

Effect of exchange rate changes on cash and cash equivalents and restricted cash